Treasuries Close Modestly Lower After Seeing Early Strength

4/12/2012 3:24 PM ET

After seeing early strength, treasuries turned lower over the course of the trading day on Thursday, pulling back further off Tuesday's highs.

Bond prices slid into the red in morning trading and remained stuck modestly below the unchanged line. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.1 basis points to 2.049 percent after hitting an early low of 2.012 percent.

The turnaround by treasuries was partly in reaction to a Commerce Department report showing a significantly narrower than expected U.S. trade deficit in the month of February.

The report showed that the trade deficit narrowed to $46.0 billion in February from $52.5 billion in January. Economists had been expected a trade deficit of about $51.7 billion.

The data indicated that trade wasn't as big of a drag on first quarter GDP growth as previously anticipated and led Capital Economics to raise its first quarter GDP growth estimate to 2.5 percent from 2.0 percent.

Meanwhile, traders largely shrugged off the release of a report from the Labor Department showing a notable increase in initial jobless claims in the week ended April 7th.

The Labor Department said initial jobless claims rose to 380,000 from the previous week's revised figure of 367,000. Economists had expected jobless claims to edge up to 359,000 from the 357,000 originally reported for the previous week.

While the increase lifted jobless claims to their highest level since late January, economists noted that the numbers may have been skewed by the holiday weekend.

A separate report from the Labor Department showed that its producer price index was unchanged in March following a 0.4 percent increase in February. Economists had been expecting the index to increase by 0.3 percent.

Excluding food and energy prices, the core producer price index rose by 0.3 percent in March after edging up by 0.2 percent in February. The core index had been expected to increase by 0.2 percent.

Treasuries regained some ground following the release of the results of the Treasury Department's auction of $13 billion worth of thirty-year bonds, which attracted above average demand.

The thirty-year bond auction drew a high yield of 3.23 percent and a bid-to-cover ratio of 2.76, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.65.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Peter Boockvar, managing director at Miller Tabak, said, "The thirty-year bond auction was decent following uneventful auctions of three and ten-year's in the last few days."

Economic data is likely to attract some attention on Friday, with the Labor Department due to release its report on consumer price inflation. Reuters and the University of Michigan are also scheduled to release their preliminary report on consumer sentiment in April.

Traders are also likely to keep an eye on remarks by Federal Reserve Chairman Ben Bernanke, who is due to speak at a Russell Sage Foundation/Century Foundation Conference.